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Income Tax Appellate Tribunal, BENCH “A”, KOLKATA
Before: Shri Mahavir Singh, JM & Shri M.Balaganesh, AM]
This appeal of revenue arises out of order of ld.CIT(A)-XXIV, Kolkata in Appeal No.1149/CIT(A)-XXIV/C-1/12-13 dated 19.02.2013 for A.Y.2008-09 against the order of assessment passed u/s 143(3) & 115WE(3) of the Income tax Act, 1961 (hereinafter referred to as the ‘Act ‘ ).
The first issue to be decided in this appeal is as to whether there could be a disallowance towards provision for claims amounting to 1,26,04,522/- in the facts and circumstances of the case.
The brief facts of this issue are that the assessee is engaged in the business of trading of raw jute. It was submitted that jute, an agricultural commodity comprises of a substantial portion of moisture and its weight gets reduced due to a passage of time.
C.O.No.95/Kol/2013 M/s. The Jute Corporation of India Ltd.. A.Yr.2008-09 It was submitted that certain percentage of moistures would be regained between the period of procurement and delivery. Generally the mills raised claim for loss of moisture in the form of weight loss apart from quality variances, when it is delivered to their points and Corporation has to set off that loss by making suitable provision on reasonable basis in its accounts. Out of this provision, the amounts will be paid during the year in the form of claims on different mills. The assessee submitted that the provisions made was on fair estimation of claims expected considering the nature of trade involved. The assessee made a provision of Rs.1,45,00,000/- out of which Rs.1,26,04,522/- was actually paid by the assessee to the mills for claims set off. The list of these provisions together with the details of payments were submitted before the ld. AO. However, the ld. AO treated the said provision for claims as merely contingent and an unascertained liability and accordingly disallowed the same in the assessment.
On first appeal the ld. CIT(A) found that out of the total provision of Rs.1,45,00,000/-, the assessee has actually paid Rs.1,26,04,522/- towards settlement of claims and restricted the disallowance to Rs.18,95,478/- (Rs.1,45,00,000/- - Rs.1,26,04,522/-). Aggrieved, the revenue is in appeal before us on the following ground :- “
1 That the Ld CIT(A) has erred and not justified in deleting the disallowances made on account of provisions for claims amounting to Rs.1,26,04,522/- “
5. We have heard the rival submissions. The ld. DR could not controvert the findings recorded by the ld. CIT(A). In response to this the AR vehemently supported the order of the ld. CIT(A). We find that the ld. CIT(A) had allowed the claim based on actual payment made by the assessee towards settlement of claims. Hence, we find no infirmity in the order passed by the ld.CIT(A) on this ground. Accordingly ground no.1 raised by the revenue is dismissed.
6. The next issue to be decided in this appeal is as to whether disallowance of Rs.9,86,287/- on account of miscellaneous expenses could be made in the facts and circumstances of the case.
C.O.No.95/Kol/2013 M/s. The Jute Corporation of India Ltd.. A.Yr.2008-09 7 . The brief facts of this issue are that the assessee debited a sum of Rs.49,31,434/- in its profit and loss account towards miscellaneous expenses and the assessee furnished the sub-head wise break up of the said expenditure for its head office, regional office, Sonali, Kolkata Branch and Delhi office which came to Rs.54,23,230/-. The ld. AO observed accordingly that the miscellaneous expenses debited to the profit and loss account is not correct. The ld. AO called for the reconciliation of the said difference from the assessee which were not filed. Accordingly he proceeded to disallow 20% of the miscellaneous expenses actually debited in the profit and loss account and made disallowance of Rs.9,86,287/- in the assessment.
Before the ld. CIT(A) the assessee submitted that the total expenditure of Rs.54,23,230/- towards miscellaneous expenses was actually incurred and there is a credit of Rs.4,91,793.12 to the account of miscellaneous expense and hence the net amount of Rs.49,17,434/- was actually debited in the profit and loss account. The ld. CIT(A) stated that the assessee is a Govt. of India enterprise and there cannot be any addition based on estimated disallowance and on surmises and conjectures. Accordingly he deleted the estimated disallowance of 20% amounting to Rs.9,86,287/-. Aggrieved, the revenue is in appeal before us on the following ground :- “
2 That the Ld CIT(A) has erred and not justified in deleting the disallowances made on account of misc. expenses amount to Rs.9,86,287/-“
9. We have heard the rival submissions and perused the materials available on record. We find that the ld. CIT(A) had given a categorical finding about the facts of this issue. We find no infirmity in the order passed by the ld.CIT(A) in this regard. Accordingly ground no.2 raised by the revenue is dismissed.
10. The next issue to be decided in this appeal is as to whether disallowance of prior period expenses in the sum of Rs.31,29,210/- could be made in the facts and circumstances of the case.
C.O.No.95/Kol/2013 M/s. The Jute Corporation of India Ltd.. A.Yr.2008-09 11. The assessee debited a sum of Rs.31,29,210/- and the same was reflected as prior period expenditure in the accounts of the assessee as well as in the Tax Audit Report. The ld. AO disallowed the same on the ground that the expenditure has not pertained to the year under appeal.
On first appeal the assessee submitted that the entire prior period expenditure debited to the profit and loss account had actually crystallized during the financial year 2007-08 relevant to A.Y.2008-09. It was also submitted that as per the policy of the assessee’s Corporation, expenditure in excess of Rs.10,000/- which could not be fairly estimated during the related year of expenses, but crystallized and paid during the current year were being charged to prior period expenses as the same could not be ascertained before its occurrence period. The details of the said prior period expenses are as below :- a)Bonus : Rs.10,19,794/- : This represents bonus paid for the financial year 2006-07 for which no provision has been made in the earlier year and claimed as deduction. This is a statutory payment made as per payment of Bonus Act and in any case it is allowable as deduction u/s 43B of the Act. b) Company’s contribution to Gratuity Fund : Rs.5,56,184/- : There was a short fall in the contribution to the gratuity fund to be made by the assessee’s Corporation during the financial year 2006-07 which was actually paid during the financial year 2007-08 relevant to A.Y.2008-09. The fact is that the Corporation being a Public Sector Undertaking contributed in each year to its gratuity fund administered by LIC and the amount of short fall as intimated by LIC for the financial year 2006-07 were paid in the financial year 2007-08. Hence the same could be crystallized during the year under appeal and in any case the same is allowable as deduction u/s 43B of the Act on payment basis. c)Medical expenses Reimbursement : Rs.2,82,061/- - The assessee submitted that as per the terms of employment, the assessee is liable to reimburse medical expenses to its employees. This amount represents medical bills reimbursed during the financial year 2007-08 to the employees of the assessee’s Corporation who had not submitted their claim for reimbursement during the financial year 2006-07 but belatedly
C.O.No.95/Kol/2013 M/s. The Jute Corporation of India Ltd.. A.Yr.2008-09 submitted the same during the financial year 2007-08. It was submitted that no provision or claim of this expenditure was made in the earlier years on accrual basis. d) Godown Rent and Storage : Rs.9,12,767/- : It was stated that the portion of godown rent was paid due to enhancement of rent w.e.f. earlier period were booked under prior period expenses. The rents were enhanced on demand and after consideration of appropriate authority following negotiation with the landlord, the assessee actually paid the enhanced rent during the financial year 2007-08 although it pertains to the period relating to the earlier years.
The ld. CIT(A) appreciating the aforesaid facts and submissions had categorically found that all these items got crystallized during the financial year 2007- 08 relevant to A.Y.2008-09 and held that the assessee is entitled for deduction of the same and accordingly deleted the addition made by the ld. AO. Aggrieved, the revenue is in appeal before us on the following ground :-
“3. That the Ld C!T(A) has erred and not justified in deleting the disallowances made on account of Prior Period expenses to the tune of Rs.31,29,210/-“ 14. We have heard the rival submissions and perused the materials available on record. The facts stated herein above remain undisputed and hence are not reiterated for the sake of brevity. We find from the aforesaid facts that the entire expenditure have been duly crystallized and paid during the year under appeal. Though the same were classified as prior period expenses in accordance with the accounting policy of the Corporation and generally accepted accounting principles. It is not the case of the revenue that the said expenses are not regular business expenditure. It is not the case of the revenue that the assessee had made a claim of the aforesaid expenditure on accrual basis in the earlier years. We also find that the expenses like bonus and gratuity fund are also allowable, in any case, u/s 43B of the Act on payment basis. In view of this, we do not find any infirmity in the order passed by the ld. CIT(A). Accordingly ground no.3 raised by the revenue is dismissed.
C.O.No.95/Kol/2013 M/s. The Jute Corporation of India Ltd.. A.Yr.2008-09 15. The next issue to be decided in this appeal is as to whether disallowance to be made towards provisions for bonus in the sum of Rs.11,93,115/- in the facts and circumstances of the case.
The assessee provided for bonus in its books as is being done over the years in accordance with the provision of the payment of Bonus Act to the extent of Rs.22,33,555/- and claimed the same as deduction in the return of income. The ld. AO disallowed the same as the same was not paid by the assessee during the financial year 2007-08 relevant to A.Y.2008-09.
On first appeal, the assessee submitted evidences before the ld. CIT(A) that out of the provisions made in the sum of Rs.22,33,555/-, a sum of Rs.11,93,115/- was paid on 30.09.2008 which is the due date of filing the return of income for A.Y.2008- 09 and accordingly atleast to that extent, the assessee is entitled for deduction u/s 43B of the Act. The ld. CIT(A) appreciated this contention of the assessee and granted relief to the extent of Rs.11,93,115/- and upheld the addition of Rs.10,40,440/- (Rs.22,33,555/- - Rs.11,93,115/-). Aggrieved, the revenue is in appeal before us on the following ground :- “
4 That the Ld CIT(A) has erred and not justified in deleting the disallowances made on account of Provision for Bonus to the tune of Rs. 11,93,115/-“
18. We have heard the rival submissions and perused the materials available on record. We find that the categorical factual findings given by the ld. CIT(A) in its appellate order were not controverted by the ld. DR before us. Hence we do not find any infirmity in the order passed by the ld. CIT(A). Accordingly ground no.4 raised by the revenue is dismissed.
19. The next issue to be decided in this appeal is as to whether the administrative charges on PF and payment of banking cash transaction Tax would be disallowed in the sum of Rs.10,06,732/- in the facts and circumstances of the case.
C.O.No.95/Kol/2013 M/s. The Jute Corporation of India Ltd.. A.Yr.2008-09 20. During the course of assessment proceedings the ld. AO observed that the assessee has debited Rs.4,03,717/- and Rs.6,03,015/- in its profit and loss account under the head “Other expenses” on account of administrative charges on PF and banking cash transaction tax respectively. The ld. AO disallowed the same on the ground that they are not admissible as business expenses.
On first appeal, the assessee submitted that the assessee paid administrative charges to the Regional Provident Fund Commissioner during the financial year 2007- 08 relevant to A.Y.2008-09 as per the Provident Fund Act and had also submitted that if the same not being paid, the exemption granted to the Corporation to maintain its trust might have been withdrawn.
21.1. Similarly the assesee has paid banking cash transaction tax to banks which is nothing but the tax levied by the bank authorities and debited to the bank account of the assessee automatically. The ld. CIT(A) found that the payment of administrative charges to Regional Provident Fund Commissioner is a statutory payment and also found that the banking cash transaction tax incurred by the assessee is an allowable expenditure u/s 36(1)(xiii) of the Act. Accordingly he deleted the addition made by the ld.AO. Aggrieved, the revenue is in appeal before us on the following ground :- “5. That the Ld CIT(A) has erred and not justified in deleting the disallowances made on of Administration charges on PF & BCTT debited to the P& L account to the tune of Rs. 10,06,732/-.”
We have heard the rival submissions and perused the materials available on record. From the perusal of the order of ld. CIT(A) on this ground we do not find any infirmity in the order passed by the ld. CIT(A). Accordingly ground no.5 raised by the revenue is dismissed.
The next issue to be decided in this appeal is as to whether the ld. AO is justified in deleting the disallowance on account of provision of leave salary to the tune of Rs.9,39,47,285/- in the facts and circumstances of the case.
C.O.No.95/Kol/2013 M/s. The Jute Corporation of India Ltd.. A.Yr.2008-09 24. The assessee made provision for leave encashment based on actual valuation at the end of the financial year to the extent of Rs.9,71,60,482/- and pleaded that the same is allowable as deduction as it is an ascertained liability and has provided based on a scientific calculation and rational method. The ld. AO disallowed the same on the ground that it is only a provision of unascertained liability. Before the ld. CIT(A) the assessee provided a chart as below :- Opening balance of leave Rs.9,39,47,285 salary provision on 1.04.2007 Add Amount debited to Rs.1,47,44,577 accounts during 2007-08 Less Paid during year out of Rs.1,15,31,380 provision made Closing balance as Rs.9,71,60,482 disclosed to notes
The ld. CIT(A) restricted the disallowance to Rs.32,13,197/- and directed the ld.AO to verify whether the leave encashment benefit of Rs.115,31,380/- was actually paid by the assessee during the year and if so the assessee was entitled to get the relief accordingly. Aggrieved, the revenue is in appeal before us on the following ground :- “
6. That the Ld CIT(A) has erred and not justified in deleting the disallowances made on account of Provision for Leave salary to the tune of Rs. 9,39,47,285/-“
26. We have heard the rival submissions and perused the materials available on record. We find from the ld. CIT(A)’s order that the ld. CIT(A) had given direction to the AO to verify the fact of actual payment of Rs.1,15,31,380/- towards leave salary benefit. From the perusal of the records we are not convinced as to what is the amount that has been debited to the profit and loss account during the year and what the amount actually paid by the assessee out of the provision for leave encashment made in the earlier years. Moreover, we also find that this aspect has not been examined by the authorities below in the light of the provision of section n 43B(f) of the Act which is reproduced below :- “Certain deductions to be only on actual payment 43B (f) any sum payable by the assessee as an employer in lieu of any leave at the credit of his employee,
C.O.No.95/Kol/2013 M/s. The Jute Corporation of India Ltd.. A.Yr.2008-09 Shall be allowed irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him:”
We find that this provision has been initially held to be unconstitutional by the Hon’ble Calcutta High Court in the case of Exide Industries vs CIT reported in 292 ITR 470 (Cal). On further appeal against this order by the revenue before the Hon’ble Supreme Court, the Hon’ble Apex Court initially stayed the proceedings of the Hon’ble Calcutta High Court in CC 12060/2008 dated 8.9.2008 but later during leave proceedings in CC 22889/2008 dated 8.5.2009 held that the provision of section 43B(f) of the Act have to be complied with by the assessee as if the said provision is in force but at the same time directed the assessee to make the claim of the same in the return of income on provision basis. However, this interim direction of the Hon’ble Apex Court is subject to the outcome of the Civil appeal by the Hon’ble Apex Court. In the light of the aforesaid directions of the Hon’ble Supreme Court, we deem it fit and proper, in the interest of justice and fair play, to set aside this issue to the file of the ld. AO, to decide this issue based on the final outcome of the Supreme Court in the aforesaid case. The ld. AO is also directed to verify the veracity of the figures mentioned in the chart reproduced herein above. The assessee is at liberty to produce additional evidences in support of its contentions. Accordingly ground no.6 raised by the revenue is allowed for statistical purposes.
The next issue to be decided in this appeal is as to whether the ld. AO is justified in making the disallowance on account of gratuity liability to the extent of Rs.2,52,55,625/- in the facts and circumstances of the case.
The assessee provided for gratuity in the sum of Rs.2,52,55,625/- and claimed the same as deduction in the return of income. The ld. AO disallowed the same. Before the ld. CIT(A) it was submitted that the A. O. has disallowed the above amount being the excess provision for Gratuity liability for the year 2007-08 as disclosed in TAR. As per computation sheet furnished to A.O. in course of assessment proceedings, it was clearly pointed out that, while computation of loss for the year the amount of C.O.No.95/Kol/2013 M/s. The Jute Corporation of India Ltd.. A.Yr.2008-09 Rs.2,52,55,625/- was considered as inadmissible expenses and has been added to its assessed income as per return filed for the year. So this action of arbitrary addition without considering the return income has resulted to addition of same amount in twice. As per Profit & Loss account of the amount of income was Rs.(-)13,74,99,766/- whereas as per return the same was Rs.(-)11,19,87,287, so it clearly reflects that effect of such excess provision of gratuity liability had already considered to its income for the year. Hence it was argued that this amount of disallowance Rs.2,52,55,625/- was to be allowed to the corporation. The ld. CIT(A) had observed the following in his appellate order :- “10.3 I have considered the above submission of the Ld. A/R and also gone through the assessment order. During the course of the appeal, the Ld. A/R has stated that the appellant company has already added back the disallowance of Rs.2,52,55,625/- on account of the provision for gratuity liability in the computation sheet furnished to the A.O. The Ld. A/R has further explained that the A.O. should not disallow the same amount again as it has been already disallowed by the appellant in its in the computation of income. Considering the facts of the case, I am of the opinion that the same disallowance should not be made twice as it would lead to double taxation. Accordingly, the A.O. is directed to delete the disallowance of Rs.2,52,55,625/ - on account of. gratuity liability after verifying the contention of the appellant that the same has already been disallowed in its return of income. For the statistical purpose, this ground of appeal
may be treated as allowed.” Aggrieved, the revenue is in appeal before us on the following ground :- 7That the Ld CIT(A) has erred and not justified in deleting the disallowances made on account of Provision for gratuity liability to the tune of 2,52,55,625/-“
30. We have heard the rival submissions and perused the materials available on record. From the categorical finding given by the ld.CIT(A) in his appellate order, we find no infirmity in the order passed by the ld. CIT(A) on this ground. Accordingly, ground no.7 raised by the revenue is dismissed.
In the result the appeal of the revenue is partly allowed for statistical purposes.
C.O.No.95/Kol/2013 (By the assessee ) 32. The ld. AR submitted that the Cross Objection of the assessee are supportive of the order of the ld. CIT(A). Accordingly the same is dismissed as infructuous.
C.O.No.95/Kol/2013 M/s. The Jute Corporation of India Ltd.. A.Yr.2008-09 33. In the result the appeal of the revenue is partly allowed for statistical purposes and the Cross Objection of the assessee is dismissed as infructuous.
Order pronounced in the court on 25.05.2016.
Sd/- Sd/- [Mahavir Singh] [M.Balaganesh] Judicial Member Accountant Member Date: 25.05.2016. R.G.(.P.S.) Copy of the order forwarded to:
1. 1. M/s. The Jute Corporation of India Ltd., 15N, Nellie Sengupta Sarani, 7th Floor, Kolkata-700087. The D.C.I.T., Circle-1, Kolkata. 2 3. The CIT-I, Kolkata, 4. The CIT(A)-XXIV, Kolkata.